Yahoo Moves on Mobile Ads

BARCELONA -- 3GSM World Congress -- Yahoo Inc. (Nasdaq: YHOO) gave a boost to the mobile advertising market with the launch of its display advertising platform for its mobile Website at the 3GSM conference here in Barcelona. But analysts say this market won't really take off until mobile operators change their data charging ways and offer flat-rate packages.

Some of Yahoo's top advertisers are participating in the new mobile platform, including Intel Corp. (Nasdaq: INTC), Hilton's Embassy Suites, Infiniti, Nissan, Pepsi, Procter & Gamble Asia Pacific, and Singapore Airlines. Ads will run at the top of Yahoo's mobile Web home page, and users can click on an ad to call the advertiser directly. The service will be available in 19 countries.

Even with such big global brands on board, Yahoo's advertising platform is just one small step for mobile advertising.

The mobile advertising market is in its infancy. Advertisers are not interested now, because they are put off by the small screens and don't see a big enough mobile media audience. And mobile operators have yet to work out the right charging model for mobile media. But Internet giants like Yahoo and Google (Nasdaq: GOOG) are eager to extend their advertising-based models onto mobile phones.

What's holding the market back? "Everything," says Gabriel Brown, chief analyst at Unstrung Insider. "It's technical as well as getting the business model and user experience right."

Despite the challenges, Yahoo's industry peers view the initiative positively.

"This is really good for mobile advertising," says Omar Hamoui, founder and CEO of AdMob, which sells advertising to 900 mobile Websites with 600 million page views per month. "The ecosystem needs to be built out, so this is pretty exciting and cool for the industry."

According to Ernst & Young International , the advertising spend in just the U.K. was £12 billion last year. "Mobile advertising is an almost infinitely small decimal of that amount," says James Healey, media analyst at Ernst & Young.

He says the mobile advertising market is about two to three years away. "There needs to be larger screens and much more prevalence of mobile TV and 3G services."

Healey says advertisers have taken a wait-and-see approach to mobiles, mainly because of the small screen sizes. "They can't work out how to make an advertisement that's meaningful to consumers on a mobile phone." (See Would You Like Ads With That?)

AdMob's Hamoui says operators need to change how they charge for mobile Internet services to boost usage and attract advertisers. "Most operators will have to go to flat rate data," says AdMob's Hamoui. "They need to encourage mobile browsing and mobile data use."

Indeed, mobile operators don't want to be left holding the network for mobile media services -- they want a slice of the advertising revenue, too.

Three UK in the U.K. took the brave step toward flat-rate pricing in November last year when it launched the X-Series mobile broadband services. (See 3 Plots Mobile Broadband.)

Yahoo is Vodafone Group plc (NYSE: VOD)'s exlusive partner for mobile display advertising in the U.K. (See Yahoo Pegs Mobile Ads and Vodafone, Yahoo! Team Up.) A Vodafone spokesman said that Yahoo's new advertising platform does not conflict with their relationship and that the companies were on target to launch an advertising-based service this quarter.

Meanwhile, back in Barcelona, smaller mobile advertising also launched new products. Helsinki-based First Hop Ltd. unveiled a mobile advertising service creation solution that will enable operators to offer advertising-based SMS, MMS, and content services.

And Xius India Ltd. , the telecom division of Mumbai-based Megasoft Ltd. , launched a smart-tagging and context-based advertising engine called MyPeers. The software will attach appropriate advertisements to SMS messages, for example, based on the user's location.

— Michelle Donegan, European Editor, Light Reading

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